"They haven't been touched in 40 years, and this is long overdue," says Ranzenhofer. "The time is right to cut the red tape and make New York a truly business friendly environment for nonprofits. The need to reform governance and oversight is also clear. I look forward to working with the Attorney General in proposing these comprehensive, common-sense reforms, and I urge my colleagues in the Senate to work with us to pass them before the close of this session."
"Nonprofit organizations provide critical services to New Yorkers across the state and represent a powerful engine for economic growth and stability," says Schneiderman. "We must work together with the nonprofit community to cut red tape while strengthening governance and oversight, and that’s exactly what this legislation does. Our goal is to revitalize New York's charitable organizations and, at the same time, put a stop to the financial abuses that have come to light. I am grateful to Senators Ranzenhofer and Marcellino and Assembly Members Brennan, Englebright, and Weinstein for their leadership and commitment to reform.”
Nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue and are responsible for one in seven jobs in the state. The lingering recession and slow economic recovery, as well as a continuous series of weather-related disasters, present unprecedented financial, strategic, and governance challenges for nonprofits. At the same time, the public’s trust in the nonprofit sector has eroded, as stories of public officials and other people abusing charities have been uncovered.
Attorney General Schneiderman first proposed charities reform last spring, just before the close of last year’s legislative session. Over the last twelve months, key committee chairs in both houses of the legislature and the Attorney General have worked closely with stakeholders in the nonprofit community to strengthen the reforms and shape the legislation being introduced today.
- The Nonprofit Revitalization Act will bring reform in two main areas:
o Enhancing nonprofit governance and oversight to prevent fraud and improve public trust; and
o Reducing unnecessary and outdated burdens on nonprofits.
- The Nonprofit Revitalization Act will give New York the strongest nonprofit governance regime in the country. These bills will:
o Ensure sound financial management by requiring that charities’ boards perform active oversight over financial audits. Boards will be responsible for retaining independent auditors and reviewing results of the audit. At larger charities (over $1 million in annual revenue), the board or audit committee will be required to follow additional oversight procedures.
o Prevent conflicts of interest by requiring that transactions between a nonprofit and insiders who stand to benefit be fully disclosed and that nonprofit boards determine they are fair, reasonable, and in organizations’ best interests. When a charity engages in a substantial transaction with an insider, the board will have to consider alternatives and document its basis for choosing the insider transaction.
o Strengthen the Attorney General’s power to police fraud and abuse by granting clear power to bring judicial proceedings to unwind interested-party transactions.
o Ensure board independence by prohibiting any employee of a nonprofit from also serving as chair of its board.
o Promote good governance by requiring all nonprofits to adopt conflict of interest policies and those with over $1 million in annual revenue and 20 or more employees to adopt whistleblower policies.
- Attorney General Schneiderman’s Nonprofit Revitalization Act will also streamline and modernize New York law to remove unnecessary burdens, save taxpayer dollars, and help nonprofits focus resources on providing services by:
o Streamlining procedures for nonprofit mergers, property sales and corporate dissolutions, so that funds needed for ongoing charitable programs are not wasted on unnecessary red tape;
o Modernizing laws to allow nonprofits to conduct their affairs more efficiently, such as permitting nonprofits to use email and video technology for meetings and allowing boards to delegate the approval of small transactions to committees; and
o Eliminating unnecessary and costly requirements for nonprofits forming in New York, saving nonprofits money and time and allowing them to commence charitable programs more quickly.
Summary of the Executive Compensation Reform Act
The Executive Compensation Reform Act will:
- Rein in excessive compensation by requiring that boards of nonprofits review compensation and determine it is fair, reasonable and justified. All organizations will have to review and approve CEO compensation.
- Require Additional Oversight at Large Organizations: Charities with annual revenue of over $2 million will also have to review the compensation of the top five highest paid officers or key employees and compare it to that paid at similar organizations.